Technology helps UK firms add more value

A DTI report shows the UK is top dog in Europe for turning investment into profit

The Department of Trade and Industry (DTI) will today publish its annual Value Added Scoreboard, which indicates that UK firms are more efficient at creating wealth than their European counterparts - returning £1.73 for every £1 of input cost, compared with £1.29 in Germany and £1.42 in France.

Trend experts said the success is at least partly due to UK firms’ investment in new technology and research and development.

The DTI scoreboard shows the value add of the top 800 UK firms and top 700 European firms by calculating their sales less the cost of bought-in goods and services.

Report author Dr Mike Tubbs of the DTI said the scoreboard shows managers how efficiently their company turns investment into profit and helps them to compare their performance against their rivals.

UK firms accounted for over a quarter of the total value add created by the top European firms, saw their value add grow the fastest, and had the highest wealth-creation efficiency.

Tubbs said the UK's strong performance was partly due to its high concentration of industries that deliver strong returns on lower investments, such as financial services and banking. However, he added that even within these sectors UK firms were performing strongly.

The impact of technology investments on value add is difficult to judge, according to Tubbs, as firms rarely publicise the size of their IT budgets. However, he said that there were signs that firms with a reputation for IT investment, such as Tesco, tend to have a stronger value add.

"There are three drivers for strong value add: making good strategic choices, getting business processes and customer interactions right, and maintaining wise and balanced investment," said Tubbs. "IT investment is a big part of providing slick business processes and wise investments."

However, the news was less encouraging for the European software and hardware sectors, which despite improving their performance continue to lag far behind their US rivals for value add. "In Europe, the software and services sector remains pretty small, accounting for less than one percent of the value add of the top 700 firms," said Tubbs. "There is still an enormous gap between Europe and the US for both the hardware and software sectors."

However, Tubbs argued that the strength of IT-intensive sectors in the UK, such as financial services, banking and retail, offered hope that domestic IT firms could narrow the gap. "The UK should be in the best position in Europe to grow its IT sectors as the customers are out there," he added.